Monday, December 10, 2012

When Corruption Greases the Wheels of Prosperity

Mainstream media seems befuddled by the connection between economic growth and corruption

The Reuters reports,
Uzbekistan, Bangladesh and Vietnam found themselves cheered and chided this week.

The Corruption Perceptions Index, compiled by Berlin-based watchdog Transparency International, measured the perceived levels of public sector corruption in 176 countries and all three found their way into the bottom half of the study.

Uzbekistan shared 170th place with Turkmenistan (a higher ranking denotes higher perceived corruption levels) . Vietnam was ranked 123th, tied with countries like Sierra Leone and Belarus, while Bangladesh was 144th.

Those findings are unlikely to surprise. But consider this. All three countries are said to boast some of the best prospects for business and growth over the next two decades. That’s according to the findings of a separate study released in the same week.

Uzbekistan, Vietnam and Bangladesh made it into the top 20 countries with the best growth prospects for business, outranking the United States, a study by political risk consultancy Maplecroft found…
They conclude:
Corruption and good growth prospects may seem uneasy bedfellows, but the findings of the two studies do hint that dodgy dealing might sometimes be a symptom of  a fast-moving, unshackled economy. Transparency International’s corruption study ranks China and India 80th and 94th respectively but these have also been the the world’s fastest growing economies, and its worth recalling that Maplecroft ranks them 1st and 2nd in terms of business growth potential.
Roman orator, lawyer, historian and senator Gaius Cornelius Tacitus or popularly known as Publius Tacitus accurately described the essence of corruption in the Annals: Corruptissima re publica plurimae leges or
The more numerous the laws, the more corrupt the government.
It is naïve or myopic to see people as inherently having perverse values as driving corruption. Instead, when politics, via legislation, ordinances, regulations, decrees or political institutions become an obstacle to survival, people will resort to corruption.

In short, the political environment influences people’s actions. The harder it is to engage in openly working for a living due to social controls, the more likely people’s economic activities will be driven underground or the informal economy (guerrilla capitalism), which would partly entail paying off or bribing political authorities.

Corruption, in this sense, signifies an intuitive reaction against political restrains on economic activities.

As University of Columbia assistant professor of political science Chris Blattman observes (hat tip Prof Pete Boettke) [italics original]
Most of us fail to imagine that corruption can also grease the wheels of prosperity. Yet in places where bureaucracies and organizations are inefficient (meaning entrepreneurs and big firms struggle to transport or export or comply with regulation), corruption could improve efficiency and growth. Bribes can act like a piece rate or price discrimination, and give faster or better service to the firms with highest opportunity cost of waiting.

In theory, this improves overall efficiency. If bribes subsidize large chunks of the government, then corruption reduces the need to collect taxes and allocate government spending efficiently–difficult and expensive tasks in poor countries. The “tax” that corruption imposes could be more efficient than the seemingly clean alternative.
It’s really not people who are immoral, but the politicians and the political environment which they made, that inhibits people's right to live.

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