The thing about getting older (it seems) is that the blackness and whiteness of “morality” has lost some of its starkness. Many, of course, would say that’s just the evil inhabiting my soul and blinding my eyes to what is an obviously obvious clarity; and if I’d only just read this section of Paul’s epistle to a now-non-existent city, and submit myself to the authority of some self-appointed elders, it would all become clear.

And perhaps that works for them. But I find that the strict codes do the following: if I cannot live up to them, I become despondent and rage-filled; if I can, then I turn into a sanctimonious prig. Neither of those seem like good outcomes, so out with the bathwater.

Which brings me to corruption: the plague and scourge of almost every developing country (and every other country, actually – corruption is universal, just like humans are universal). Although, according to many at the World Bank, the IMF and the UN: corruption is the main reason why developing countries are still developing.

The Corruption “Equation”

Economists love equations. Corruption is no different – many papers will quote the following equation from a 1998 IMF paper by Robert Klitgaard:

C = M + D – A

Where “C” is corruption, “M” is monopoly power, “D” is discretionary power, and “A” is accountability.

Or, to put it into actual words: if you have the power to extort a bribe, and you can get away with it, you probably will.

At which point, we can all shake our heads and make noises about either removing the power or not letting people get away with it.

Here’s an infographic:

The facts are pretty clear: corruption feels more widespread to people that live in poor countries. And the implication: corruption is the reason they stay poor. But here’s my question: is that the right way around?

Corruption is a consequence

Here is a cycle of events:

  1. Developing countries do not have a lot of wealth to go around.
  2. More importantly, the majority of the country’s citizens are either subsistent, or their businesses are informal and small enough to be invisible to the tax man.
  3. This means that the tax collections are not going to be particularly impressive.
  4. Low tax collections limit the government’s budget.
  5. So public officials are not going to be paid very well, making them very susceptible to bribery.
  6. Limited government budgets also means limited (or non-existent) welfare. So the poor are going to be particularly susceptible to patronage and vote-buying in order to get the benefits that are not being universally supplied.
  7. And low government income means that almost none of it will be spent on the accountants and lawyers that are needed to fight corruption.
  8. And actually, on the topic, politicians are going to be more susceptible to “patronage” from special interest groups (although that seems to be the case regardless of a country’s GDP)…

That’s not to say that larger tax bases always result in lower corruption (they don’t) – but they certainly make it more possible.

In any case, is corruption such a bad thing?

In World War II movies (like Schindler’s List), you see examples of noble corruption – where someone bribes the German soldiers to save lives. By the black-and-white definitions, that’s immoral. And yet…

But we don’t even need to go that far. If we go back to the original equation up top, the “M” of monopoly power refers to economic rent-seeking. Economic rent-seeking is usually accompanied by excessive regulations and laws that permit these “economic agents” to seek rent (ie. bribes). And I’d argue that any kind of regulation can be used for rent-seeking if a public official so wishes.

So let’s say that we’re dealing with a court case somewhere in Africa where the proceedings will take months for a matter that would be decided and cleared within hours in a less-regulated country… Can you imagine how much more difficult it would be for business to operate if they couldn’t ease matters along?

A quote from American political scientist Samuel Huntington:

“In terms of economic growth, the only thing worse than a society with a rigid, over-centralised dishonest bureaucracy is one with a rigid, over-centralised honest bureaucracy.”

In most ways, we should be grateful for the grey.

PS: this post was almost entirely inspired by Ha-Joon Chang’s book “Bad Samaritans”. Specifically, Chapter 8.