Saturday, October 1, 2011

Corruption and Economic Growth

Here is a bit from an interesting post by Tim Harford in his blog:
An old joke: a bureaucrat from Sani Abacha’s Nigeria visits a bureaucrat in Suharto’s Indonesia and is impressed that his Indonesian counterpart lives in a nice house and drives a Mercedes. “Do you see that road? Ten per cent,” the Indonesian explains.

A couple of years later the visit is reciprocated. Suharto’s man finds the Nigerian civil servant in a palace with a pair of Ferraris. “Do you see that road?” says the Nigerian, gesturing at virgin rainforest. “One hundred per cent.”

There is more to the joke than meets the eye, of course: Indonesia managed to combine severe corruption with many years of strong growth, while Nigeria stagnated over a similar period. Corruption matters, but so does the type of corruption.

And here is a conundrum. Technocrats have long offered economic policy advice to powerful people in developing countries, yet powerful people may have much more to gain by ignoring the advice and lining their own pockets. The problem is so severe it is a wonder that economies ever develop at all. But the situation is not hopeless, because contrary to the joke, it may be better to get 10 per cent of a booming economy than 100 per cent of a stagnating one.
What the world needs now is a more intelligent criminal class, parasites with preferences, and official who limit their offensive behaviour to pilfering and not plunder. We need to throw out the current bums and try to set up a "better world". Be we all know you can't get rid of the grifters and cheats. So our only hope is to put rules in place to keep corruption under control. Out with the insanity of the "Reagan revolution" with its "deregulate, deregulate, deregulate" and back in with "good government" and rules to control corruption.

I'm not big on the "solution" to greed and corruption that Harford points out as the system at work in South Korea:
Perhaps this is why export markets have proved such an important element in the success of many Asian economies: domestic markets may be sewn up in corrupt deals, but the government can still insist on export success as a precondition for political favours. Only productive firms are allowed to join the corrupt club – with export markets a good test of genuine productivity. For a case study, consider decades of South Korean growth.
Instead, I vote for honest government agents tied to a healthy middle class that feels an ownership for their communities and government. This is exactly what the Republicans have been busily working to destroy in America for the last 30 years with their message of "government is not the solution to our problem; government is the problem" and "reduce it [government] to the size where I can drag it into the bathroom and drown it in the bathtub".

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