Corruption is one of those issues that has a special ability to get the collective blood boiling. When corruption comes to light it has the power to destabilize entire countries. While researching for a piece on corruption in sports I came across an idea that at first really perturbed me. The idea that some corruption is acceptable.
Surely that can’t be right. The more I thought about it, and dug into it, the more I found that this is not a new idea and there are many articles that in one way or another asserted that corruption can be good, effective, and even necessary. These arguments can be put under the ‘greasing-the-wheels’ hypothesis.
Under this hypothesis, most of the arguments stop and acknowledge correctly that a system with no corruption would be the ideal, but in a world with complex systems, the issue of corruption is not black and white and requires a response that is nuanced. It’s the next step that generally pushed me over the threshold of agreeability. Namely, whether it is in developing or developed nations, some level of corruption provides a lubricant that keeps these complex systems moving. Further, corruption does not hinder economic growth, and can be a stabilizing force in developing countries specifically. Corruption, in this argument, isn’t necessarily damaging by itself. It’s how the corruption is managed and the inefficacy of the mechanisms that control the corruption that is damaging. Is this the case?
What’s the Evidence?
In developing countries, the focus is often on economic growth. Does corruption hinder or help economic growth? In an article in Prospect Magazine, the author points to cases like Brazil, China, South Africa, and more as cases where there are high levels of corruption, but there have also been long sustained periods of economic growth and prosperity. Further, in Fortune Magazine, economist Jakob Svensson is quoted as arguing that firms operating in countries with inefficient bureaucracies and regulations can often look to bribes and corruption as a form of increasing efficiency and growth.
However, this is only part of the story. You only have to look to the countries that are used as an example above to see cracks in this story. Brazil is going through historic levels of instability due to a major corruption scandal involving its national oil company and highest levels of government. China’s level of corruption is increasing as its economic prosperity is increasing. Finally, South Africa is experiencing high tension in its political system with corruption as the key catalyst. Corruption may, when the money is flowing, keep things moving but it can, and will, corrode the façade and expose the hollowness of state mechanisms.
Critics may point out that the managing of these systems is important. There must be mechanisms to control working levels of corruption and ensure that money stays in the country to help build a country to make sure it is re-invested in the national economy. That sounds pretty reasonable. However, we’re talking about systems that are inherently opaque; regulatory ability is necessarily inefficient, and most importantly, devoid of points of accountability. Who is going to implement and oversee these mechanisms? How will the oversight work?
Prescriptions for building stable state institutions in developing countries has been a bane of international development scholars and practitioners for some time. There is something to be said for settling for better practice as opposed to best practice in the short run. A level of corruption can, in the short run, be overlooked to help stabilize a specific country and can be addressed down the road. The trouble becomes dealing with corruption once you’re down the road. You’ve ended up in a system where you’ve created pathways for corruption that become more deeply entrenched and get pushed further down the road until you get what you see in Brazil.
A study of Asia Pacific countries found that corruption and levels of economic growth were country specific. Interestingly, the study found that the greasing-the-wheels hypothesis is supported by the case of South Korea specifically for economic growth. Further, another study finds that the effects of corruption are regime specific as well, with a reduction in corruption in autocratic regimes being more beneficial than a reduction in corruption in democratic regimes. With corruption acting in unique ways within specific countries, the answer ought to lie in making it transparent to the populations of a specific country.
I am by no means advocating for a zero-tolerance policy for corruption. Critics of zero-tolerance point out the real costs that come with such an approach, especially in the developing world. However, I am by no means saying corruption is something that should be thought of as manageable for economic growth. The longer term costs are simply too high.
Where Does This Leave Us?
Corruption and its possible solutions are not simple. There is the need for a well thought out nuanced approach in dealing with corruption. I don’t disagree that some level of corruption is okay by the metric of macroeconomics, however, this is a short-term stop-gap. Turning to corruption as a manageable system to increase stability and efficiency within systems is, in the long run, setting a country up for political and social upheaval.
There are several approaches for addressing the corruption that goes beyond a simple zero-tolerance approach but hardly seeks to simply manage corruption. The World Bank outlines six approaches that could be used, including paying civil servants more, increasing mechanisms for transparency, and simplifying complex and distorting subsidies with targeted cash transfers.
Admittedly, none of these are miracle solutions, but preventive and proactive strategies are more worthwhile than allowing corruption to lubricate the process. Lubricants have their place, but when people are being screwed by their government, they should feel it.