Note: this is a repost of a much older post. But it’s still relevant, I think.

The thing about getting older (it seems) is that the blackness and whiteness of “morality” has lost some of its starkness. Of course, some might say that’s just the evil inhabiting my soul and blinding my eyes to what ought to be obvious; and if I’d only 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 sometimes. But in general, my experience is that adherence to extremely rigid moral laws results in one of the following:

  1. if I cannot live up to them, I become despondent and rage-filled;
  2. and if I can, then I turn into a sanctimonious prig.

Neither of those seem like good outcomes. Perhaps that’s just me.

But the talk of morality does bring me to the topic of corruption: that plague and scourge of almost every developing country (and every other country, actually – corruption is universal, just like humans are universal). And according to some people: corruption is one of the main reasons 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 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:

Global Corruption

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 a question: is that the right way around?

Isn’t corruption just a consequence?

Here’s 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 more susceptible to…alternative sources of income.
  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 – but they certainly seem to make it more possible.

In any case, is corruption always 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. 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 more developed country… Can you imagine how much more difficult it would be for businesses 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.”

I guess I’m a bit agnostic on this. On the one hand, I can see how the judge in that court case might delay proceedings until he gets a pay-off. On the other hand, I can see how the judge might be inclined to take more sick days if he doesn’t get paid particularly well; or how he might be overworked if he’s the only qualified judge in the area.

Either way, I don’t think that the issue of corruption is so cleanly cut. And in a very strong practical sense, there are times and situations when a little bit of corruption can go a long way to making life easier.

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

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at Or both.