Can anyone be in favour of corruption?

Author: Stijn Kuipers, Centre for Development Studies, University of Cambridge, Cambridge, UK

As the economist Dani Rodrik already said in 2007, probably not, but that is distinctly different from thinking it is one the biggest reasons why developing countries are still poor.

This, however, is what we have been doing for the last 35 years. Developing agencies have energetically set-up anti-corruption programmes, and made development projects conditional on government reforms. In this, they have been edged on by the governments of rich nations who want guarantees that tax-payer money is not wasted on corrupt cronies in far-away places. At the same time, within academia, it has been claimed that differences in institutional quality account for as much as 75% of the variation in income levels around the world (Acemoglu et al. 2014). This train of thought leads us to one logical conclusion: If only Nigeria or Madagascar (or any other country) could improve their governments, imagine where they could be economically.

When we look at the relatively few countries which have been able to jump from low- to high-income levels over the last 70 years, however, things become awkward. South-Korea, one of the poster childs of the “South-Asian Tigers”, was ruled by a corrupt military junta till 1992. Taiwan, another example of rapid and sustained economic growth, didn’t become a democracy till 1996. And one can hardly claim that China, which has been responsible for a significant part of global economic growth for the last 40 years, is anything but corrupt. Historical cases do not offer very different lessons. The USA’s economy for example grew rapidly in the late 19th century. This “gilded age” was characterised by widespread corruption, on par with levels nowadays associated with impoverished countries (Cuéllar and Stephenson 2020). So, what gives?

It is not the case that corruption is good for growth, or that institutions and good governance don’t matter (which would be inconvenient, as it would invalidate 40+ years of academic and professional work). The problem is that corruption is not necessarily the biggest impediment to economic growth, and that poorly designed anti-corruption projects may do more harm than good.

Let’s consider the impediments to growth first. Developing countries face myriad challenges, from low savings and poorly functioning (financial) markets to bad infrastructure. While corruption and poor governance might be the biggest problem in one country (Zimbabwe, anyone?), another country might benefit a lot more from better roads or industrial investments (part of the story how Korea and China grew richer). It is important in this regard to remember that developing countries cannot “fix” all their problems all at once; if they could, they would not be underdeveloped in the first place (or not for long at least). The real question is which steps are most important to kickstart and sustain economic growth in the short- and medium-run.

Instead, developing countries are often presented with long lists of necessary and (neigh) impossible reforms, which if successful would turn them into a mirror image of Denmark. This ignores the fact that it took Denmark almost a century to improve its government sufficiently to largely stamp out corruption, at which point the country was already quite rich. Taking all of this into consideration, it is very odd that the eradication of corruption has risen to the top of so many development agendas as a rule, instead of just one more tool in the toolbox.

Secondly, the way we deal with corruption is commonly ineffective. Standard approaches include raising costs for perpetrators through rules and fines, community building and integrity campaigns (boiled down, this means we go around telling people not to be corrupt because it is bad). We have also been very keen on building “good” institutions, and there are few countries in the world which nowadays do not have some sort of constitutional court, (theoretical) checks-and-balances, an anti-corruption bureau and an ombudsman. Despite all this hard work, most anti-corruption efforts fail.

This is because corruption often serves a purpose. For example, many developing countries are characterised by severe social and political tensions arising from regional disparities, power imbalances and poverty. At the same time, they lack the reliable tax base to enable the legal (re)distribution of resources which characterises developed welfare states, which might abate these tensions. How does one then stop political leaders from using these tensions to gain political clout, which can lead to violent power struggles?

One answer: by granting elites and specific social groups privileged control over political processes and sectors of the economy. This creates an incentive for these elites and groups to abstain from power competition to maintain their rents. It also provides them with the means to (re)distribute resources to enable their political tenure. This is clearly a second-best solution which can reduce political and economic efficiency, but also avoids unrest, civil wars and other phenomena which can be more harmful to development. It can also be a way for poorer parts of the population to gain access to certain services or some political clout, which would otherwise remain out of reach.

Disrupting such networks can have unforeseen and even nasty consequences. Malawi is a case in point. The donor-supported move to democracy and anti-corruption efforts in 1994 disrupted the country’s erstwhile centralised corrupt patrimonial network. Now, politicians were faced with significant incentives to redistribute state resources in the face of intense electoral competition to build their own networks and power base. This has not only led to social unrest, but increasingly corrupted the formerly relatively efficient bureaucratic system and inflated budget deficits. Nowadays, Malawi is still poor and corruption is an even bigger problem.

So why don’t we deal with these issues more sensibly? There are many reasons, one of them being that the critical appraisals and nuances known within academia have failed to spread. Corruption is often declared to be a “pathogen” or “pure evil”, which means that any nuanced argument which does not fall in line is quickly misunderstood and criticised as saying that “corruption is good”. This is distinctly different from saying that corruption persists because it serves a function and does not necessarily impede economic development. This has also made it a tough sale for any development worker or politician to declare “ya know, let’s not focus on corruption. I don’t think it’s the biggest problem right now”. This however cannot be an excuse, considering that the wealth of nations is at stake.

So what is the way forward? More easily digestible communication by academics in news outlets are key. As well as further research which shows in more detail how corruption functions in specific contexts. A guiding light can be Yuen Yuen Ang’s work on China (Ang 2020), which showcases how different kinds of corruption have different kinds of economic effects. Cross-country comparisons of the benefits and costs of successful anti-corruption programmes can also be highly interesting, especially considering how long such processes may take. And further historical comparisons can also be very helpful, as many developed countries have once been in the same place as where some developing countries find themselves now.

In conclusion, there are no silver bullets to foster economic growth. Eradicating corruption is no quick-fix, but is an incremental and slow process, with context-dependent effects and solutions. And corruption may not be the biggest issue a country faces. It is our task as academics and policy makers to (finally) bring this nuance to the fore.

*The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of the Dutch Ministry of Economics and Climate Policy or other Dutch governmental institutions.
 

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About the author

Stijn Kuipers, is a graduate of the Centre of Development Studies at the University of Cambridge, and is currently working at the Netherlands Ministry of Economic Affairs and Climate Policy, The Hague, Netherlands
 

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References

• Acemoglu D., Gallego F.A. and Robinson, J.A. (2014), “Institutions, human capital and development”, Annual Review of Economics 6, pp. 875-912.
• Ang, Y.Y. (2020), China's Gilded Age: The Paradox of Economic Boom and Vast Corruption, Cambridge University Press.
• Cuéllar, M.F. and Stephenson, M. (2020), “Taming Systemic Corruption: The American Experience and its Implications for Contemporary Debates”, Harvard Public Law Working paper No. 20-29.

N.B. This article’s title has been borrowed from a great, short blogpost from Dani Rodrik in 2007. In the intermittent 16 (!) years, not much has changed in the way we deal with corruption, despite the academic knowledge being there.