22 Aug Corruption and Development
Unacceptable levels of poverty continue to prevail in South Asia. In order to understand the nature of this poverty we have to first challenge the popularly held beliefs about its causes.
Just as there are people who believe that illiteracy or overpopulation are the major causes of poverty, there are others who attribute it to corruption and argue that nothing can be done till corruption is eliminated.
There is no doubt that corruption is a pervasive and aggravating phenomenon but even a cursory look at hard data and a comparative analysis should make one skeptical of the assertion that it is a major cause of underdevelopment in South Asia.
China provides one contrary example. The issue of corruption is very high on the political agenda of the Chinese government and people holding very high offices have been executed for related crimes. But despite the corruption the economy has expanded continuously over the past fifteen years at historically unprecedented rates of growth. Today China is considered a major economic power of the future. The concern with corruption stems less from its impact on growth and more from the social discontent it causes which negatively impacts the credibility of the government at home and abroad.
Indonesia is another country where considerable economic development occurred despite very high levels of corruption that are well documented. The country was very much a part of the East Asian miracle whose momentum was broken by the financial crisis in 1997. While the other regional economies have recovered, Indonesia is lagging not because of corruption but because of the political instability that ensued after the fall of the Suharto regime.
The East Asian crisis raises interesting issues related to corruption. Many analysts were quick to attribute the crisis to the high levels of corruption in the regional economies and “crony capitalism” emerged as a popular explanation for what happened.
This may or may not be correct but from our perspective the relevant aspect of the East Asian miracle is the tremendous economic development that took place prior to the crisis. This suggests that significant economic growth is possible despite high levels of corruption. Therefore, we need to continue searching for the causes of the lack of similar dramatic growth in South Asia.
Within South Asia, the Indian economy is doing much better than in the past and the country has begun to be mentioned in the same league as China. Our Indian readers would be able to inform us if the acceleration in the rate of growth is the result of any significant decrease in corruption in the country.
While the Indian economy is charting a steady upward course, the Pakistani economy is continuing its usual roller-coaster pattern. Once again it would be hard to relate these ups and downs to sudden changes in the level of corruption in the country. Bangladesh is rated much worse than Pakistan on the corruption index but its economic performance is not very different.
It would be interesting to compare the levels of corruption in South Asian countries. If they are different, we would like readers to try and explain the likely reasons for the differences. Such an analysis could yield ideas that could contribute to identifying measures that could reduce the prevalence of corruption.
A focused discussion of corruption would benefit from defining it narrowly as the abuse of public office for private gain. This would distinguish it from other criminal acts like fraud, embezzlement, extortion, blackmail, etc., all of which can be committed by private individuals not holding public office.
It would also help to consider separately the phenomena of low- and high-level corruption, respectively. Low-level corruption is what citizens encounter every day and what colors their perception of its importance. The social frustrations caused by having to run around and pay extra money for virtually everything can understandably make it seem the cause of all our problems.
In fact, low-level corruption may not have major negative consequences for economic growth. It constitutes a transfer of money from one pocket to another in a society where many public officials are not paid a living wage and where bureaucratic procedures remain archaic, cumbersome and slow. Its incidence inevitably diminishes with economic growth and modernization as both the need to demand small bribes and the opportunities to manipulate procedures decrease.
In a perverse way one can argue that low-level corruption, while frustrating, could actually be good for growth. The money that would otherwise go into government revenues is siphoned off into private pockets. And we can claim that in South Asia private individuals spend money more sensibly than governments. It is quite likely the government revenues would be used to buy non-productive weapons from abroad to fight non-productive wars with neighbors contributing nothing to the economies and destroying existing assets. Individuals, on the other hand, would be buying goods and services produced in local markets.
High-level corruption (the domain of big people and big businesses playing for big stakes), on the other hand, can have major lasting negative effects if public resources are diverted from economically useful to economically useless activities. But the fact remains that there are economies that have continued to grow even in the face of high-level corruption. Prime ministers have gone to jail in Korea and have been indicted in Japan on charges of corruption. Nevertheless Japan is among the richest countries in the world and Korea has vaulted into the ranks of developed countries within the period of a few decades. (We can assume that there is much less low-level corruption in Japan and Korea.)
These arguments are not intended as a defense of corruption. The world would be a better place without it and it does impose costs on the economy. But the contention that corruption is our biggest problem and we need to eliminate it before meaningful change can occur is not supported by evidence. We need to look beyond the simple answer to figure out what might be holding back South Asian economies from developing at the same rate as those in East Asia.
Transparency International’s 2007 Corruption Perceptions Index ranks 180 countries. Following is a sample of some rankings (a higher rank signifies higher level of corruption): Japan 17, Korea 43, China 72, India 72, Thailand 84, Sri Lanka 94, Vietnam 123, Philippines 131, Pakistan 138, Indonesia 143, Bangladesh 162.