The Paradox of Corruption: Can there be ‘good’ corruption? Part 1

Corruption is a strikingly dirty word in today’s newspapers, among academics, and even in our favorite TV shows and movies. It has a negative connotation because paying sums of money to public officials in order to bypass a law or other public ordinance is unethical within our society. By having such conventional definitions of corruption, we unfortunately can’t fully locate the problem and assess it. That’s because corruption might actually be helping economic growth  in certain cases instead of hurting it, causing an unknown policy schizophrenia on how to best tackle it. Everyday citizens are hurt by corruption because of the excess income they have to spend and the misuse of public money on their behalf.

Alexei Ivanov aims to show that the core of the problem to corruption are institutions and by expanding our definition of corruption, we can attempt to alleviate the poor institutional practices witnessed all over the world in developing states.

In the popular media, corruption is usually portrayed wicked and sinister, chiding public sector employees for having poor morals, whenever a case against a public official emerges (one of the most popular examples of this today is the political drama House of Cards).

Corruption is also not limited to one place or even developing states. Just recently, criminal judges in North Western Australia admitted to accepting bribes of over $2,000,000 from mafia bosses to hand down lighter sentences. It has an impact on anyone and anywhere, but more specifically we can make claims that developing countries are more prone to corruption. This is due to weaker institutions that allow for the facilitating of rent seeking practices by public officials.

©World Bank/Creative Commons License

©P T/Creative Commons License

A Nepalese billionaire Binod Chaudhary discussing corruption in developing states, said that, ‘it’s hard to generalize corruption on all levels… there are ‘facilitation costs in emerging markets’ and more, ‘businesses have to support political parties’. This evidence casts doubt on all corruption being intrinsically harmful.

Corruption Facts

Over 12 months, one in four people paid a bribe when they came into contact with one of nine institutions and services, from health to education to tax authorities

Since 1996 the World Bank has supported more than 600 anti-corruption programs….The World Bank…investigates corrupt practices with a staff of more than 50 employees and consultants, and expenditures of more than $10 million annually’

Research

The real story isn’t as clear as the facts try to show it. There is no denying that corruption occurs within all parameters of society, whenever public officials take in more than their paychecks show. However, economists have long been challenging the standard understanding of corruption.

Some economists such as Samuel Huntington believe that corruption can enhance growth by allowing individuals to pay bribes in order to circumvent inefficient rules and bureaucratic delays. Others such as Gunnar Myrdal (1968) believes that some governments set up fake rules and regulations to increase their payroll.

Corruption could be summarized as, ‘getting things done’, and usually occurs through two mechanisms:

  1. ‘Speed Money’ -> Getting past bureaucratic red tape
  2. Public Officials levying bribes as an incentive to do their jobs

Several studies have tried to link corruption and institutional quality. Most get to the conclusion that there is a non-linear relationship between corruption and economic growth. Heckelman and Powell (2008) find that corruption hinders growth in more autocratic developing states, while increases growth in democratic developing states. Mauro (1995) came to a conclusion that institutional quality is at the heart of increasing growth by eliminating corruption. While political institutions are important, another invisible attribute of corruption is the quality of economic institutions.

©Psudo on politics/Creative Commons License

©Psudo on politics/Creative Commons License

If economic freedom is low, corruption is more likely to aid in the growth of the economy. If the economic freedom is high, corruption will hinder economic growth. Therefore, the way corruption can take hold and affect a country’s economic landscape is dependent on the quality of it’s institutions. One thing that most economist today can agree on is that: poor institutional quality leads to inadequate policy decisions and overall bad governance. An MIT paper from 2009 came to the conclusion that the quality of institutions will also have economic impacts.

Where next?

With this knowledge we should put more focus on strengthening institutions as a means to change behavior rather than behavior modification designed to produce better institutions. Changing institutions is not an easy process. New institutional economics (NIE) is a recent paradigm that allows economists to analyze development, but not accept the straightjacket of the rational choice framework.

Instead of gripping onto the markets for assurance or government intervention, institutional economics analyzes both with scrutiny. Instead of taking on one ideology of socialism or capitalist, we can instead say, ‘, markets aren’t perfect, but governments aren’t either, maybe both can work in our interest if we want them to’.

By not generalizing corruption on all levels, we can better tackle corruption by figuring out productive corruption and rent seeking corruption. There doesn’t seem to be a consistent method of eradicating corruption, but that might be because each case of corruption has various factors that might different from case to case. In Part 2, coming up on Thursday, we explore  cases studies in corruption to both present the problems (and potential solutions) in practice.


The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.

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